Returns On Capital At Shimadzu (TSE:7701) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Shimadzu (TSE:7701) looks decent, right now, so lets see what the trend of returns can tell us.

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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Shimadzu:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.14 = JP¥72b ÷ (JP¥672b - JP¥151b) (Based on the trailing twelve months to March 2025).

Thus, Shimadzu has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Electronic industry.

See our latest analysis for Shimadzu

In the above chart we have measured Shimadzu's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shimadzu for free.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 62% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Shimadzu has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Shimadzu's ROCE

To sum it up, Shimadzu has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 25% return to shareholders who held over that period. So to determine if Shimadzu is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, Shimadzu does come with some risks, and we've found 1 warning sign that you should be aware of.

While Shimadzu may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.